Articles

Blockchain Could Save Treasurers Billions, One Expert Says

By Andrew Deichler

Published: 2/11/2016

LONDON -- The focus of the ACT Cash Management Conference
shifted to technology on Day 2, with an opening panel on—what else?—blockchain.
Panelists looked at how it could disrupt the financial system and the potential
benefits it offers to corporate treasury. One panelist even theorized that
blockchain technology could save treasurers billions of dollars in reduced
trading costs.

The session began with a quick audience poll of whether
blockchain technology is revolutionary. Fully 68 percent said they don’t know,
while 23 percent said yes, and 9 percent said no.

Moderator Tim Pyecroft, director, head of global corporates
UK cash management for Barclays, began by noting that corporates and banks in
general are still figuring out how to incorporate blockchain into their
businesses. He drew parallels with the early days of the internet in the late
1990s, in which businesses gradually began to realize that they needed an
online presence. “Blockchain is a very exciting technology that needs to be
used in the right way to realize the benefits,” he said.

For attendees not in the know, Pyecroft described blockchain
as a “secured spreadsheet” that sits in the cloud that multiple parties can
review. “Each of the transactions that are a part of it are guaranteed by a set
of cryptographic keys,” he said. “All of those transactions are stored in one
database. It’s the mechanic that bitcoin uses. Looking at bitcoin, what
[blockchain] does is, it allows a movement of value between counterparties
without having the need to trust, because that’s built into the mechanism. And
you don’t need a third party centrally to do that.”

Pyecroft noted that there are four key aspects of blockchain:

Data
immutability:
Blockchain allows for a complete record over time, which is
guaranteed by the previous blocks of data “chained” together.

System
resilience and speed:
Blockchain allows for real-time movement and
settlement.

Transparency
and consensus of the data:
Blockchain provides for shared, agreed data.

Automated
logic:
Blockchain provides for the ability to automate logic and build that
into the database so it can be executed once you have consensus.

Treasury benefits

While it has been widely reported that banks en masse are exploring how they can use
blockchain to their advantage, it’s still largely a gray area for many
corporates. Pyecroft asked the panel how blockchain could specifically benefit
corporate treasurers.

John Rowland, executive director of Cicero believes that
blockchain does have potential benefits for treasury. “I’m thinking
particularly about liquidity in markets, especially under stressed conditions,”
he said. “If you need to know what your position is and how quickly you can
provide liquidity to your company or to the market—that’s very important and
potentially blockchain does help that.”

Rowland added that all treasurers are under pressure to
reduce costs. “So if your bankers are providing what they’re providing at lower
costs, either hidden or explicit, I think that is always a help,” he said. “If
we can cut billions of dollars out of trading costs, that can only be a good
thing.”

Colin Tyler, chief executive of ACT, believes that treasurers
should be holding conversations with their CFOs and CEOs about the impact
blockchain could have on the company’s business strategy, as well as its
financial strategy. “Normally, treasurers only ask the questions about
financial strategy,” he said. “This change that’s coming down the track is
going to be disruptive to business.”

Tyler believes that corporates who don’t adapt to this
change run the risk of being left behind. The change might not be here yet, but
it’s coming, and treasurers need to take the long view on it. “We always say
fund early and fund long—this is think early and think long,” he said.

Clive Cooke, securities executive, R3, noted that any system
that includes transparency and efficiency should have a good impact on
treasury. He noted that as blockchain catches on, one new concept treasurers
will begin to hear a lot about is the “smart” contract, in which lawyers and
accountants essentially act as coders. “When two parties enter into a
transaction together, the accountant/lawyer/coder inputs into the blockchain
what the event you’ve all agreed on, is,” he said. “This event will occur
automatically.”

Cooke explained that when something is due on say, November
14, a smart contract will send a message to the treasurer that an action is
about to be taken. “It will say that there is a dividend, a payment, etc. due
today, and it will do it, and it will send that information to everybody that’s
a party to that information,” he said. “Then it will pop back down again and it
won’t be seen again until the next event occurs. So you’re going to hear a lot
more about smart contracts.”

Ben Zevenbergen, research assistant, Oxford Internet Institute,
is of the opinion that the majority of individuals currently developing
blockchain technologies don’t understand financial world at all. “They’re
against it; they’d rather not have a financial world. I think that’s a recipe
for failure,” he said.

Therefore, Zevenbergen sees an opportunity for
treasurers to join this development process. “Speak to the people developing
this and make it work the way that it works for the financial world and not
just the technologists,” he said. “Get involved now; don’t wait for a year,
because this is a year of development that you’re not going to get back.”

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